AIG unit raises $2 bn in aircraft sale to Macquarie

Sydney: The aircraft leasing unit of bailed-out insurer American International Group has agreed to sell 53 passenger jets to Australia’s Macquarie Group to raise a much-needed $2 billion in cash.

International Lease Finance Corp (ILFC), a top customer of Boeing and Airbus, said on Wednesday it was selling the aircraft for below their book value of $2.3 billion.

The deal follows AIG’s failed efforts to offload the entire ILFC business as part of a global asset sale programme to pay back the US taxpayer after a $182.3 billion bailout during the height of the financial crisis.

For Macquarie Group, the deal hoists it to the top of the second tier of aircraft leasing with a total fleet of 186, prompting investors to suggest it will look to expand further and capitalise on the recovering Asia Pacific air travel market.

“We see this as a good acquisition given the price, above average credit quality as called out by the company and the scalable nature of the business,” Citigroup analyst Wes Nason said.

He said the deal would eat up about $200 million of the group’s surplus capital of $4.2 billion.

“For them it makes sense to have self-sufficient, large divisions. The deal could mean they are open for expansion,” said Angus Gluskie, a portfolio manager at White Funds Management.

Switch to Sales

AIG tried selling the ILFC business but a mountain of debt at ILFC and the challenge to meet its ongoing funding requirements amid tough capital markets meant a deal was not reached.

Instead it switched to aircraft sales to fund the unit and had said last month that it was looking to sell aircraft for up to $3.5 billion.

ILFC founder Steven Udvar-Hazy, who effectively invented the business of aircraft leasing, left the firm in February after failing to buy a portfolio of planes for about $4 billion.

Formed in 1973, ILFC was bought by AIG for $1.3 billion in 1990. As part of AIG, ILFC for many years enjoyed easy funding, but its access dried up as its parent was brought to its knees by the financial crisis in September of 2008.

“ILFCs ability to accomplish significant aircraft sales, together with recent successes in the financial markets, strongly demonstrates ILFCs ability to generate liquidity and de-lever its balance sheet,” chief executive Alan Lund said in a statement.

Surplus Macquarie

By contrast, investment bank Macquarie is using the global downturn to pick up assets on the cheap.

It said the deal would not make a major dent in its capital surplus, sparking the talk of further aircraft purchases.

A Macquarie spokeswoman declined to say anything beyond the statement, citing a blackout period ahead of its profit results.

The deal expands Macquarie’s aircraft portfolio by 40%, but it remains far away from the big league dominated by ILFC and General Electric’s GE Commercial Aviation.

AIG’s chief executive Robert Benmosche said ILFC and AIG are confident in the long term potential for the business and its leadership in the market.

Macquarie said the planes acquired from ILFC comprised young aircraft on lease to 35 airlines in 27 countries. The weighted average age of the fleet was less than four years and the average remaining lease term was more than five years.

Of the 53 planes acquired, Macquarie would buy 47 aircraft outright for $1.67 billion in cash and transfer the rights to buy the remaining six to sister company Macquarie AirFinance Ltd, which is 37.5% owned by Macquarie.

Macquarie’s corporate and asset finance division already has loans and leases under management of A$13.8 billion, it said.

Macquarie shares were 0.9% higher at A$50.45 in late trade in line with the benchmark index.